A quick tip I discovered last week when making a cash transfer to my Robinhood account to avoid losing out on the interest during the money transit time.
Last week, I initiated a $25,000 cash transfer from within the Robinhood login. The funds were coming from my regular checking account and landing in Robinhood. I was surprised when the system told me that the transfer would take up to 5 business days to complete. Indeed, it ended up taking 6 full days for the funds to settle in my brokerage.
My plan had been to hold this $25,000 in cash, taking advantage of the nice interest rate offered to Robinhood Gold members.
(For those keeping score, in the end I decided to keep Robinhood Gold for the year after signing up on the pie promotion. I’m considering moving my IRA over to Robinhood, and I’m hoping they’ll run a 3% IRA transfer bonus sometime this year.)
With larger transfers the interest which is lost from the week when the funds are in transit can add up. In my case it was a matter of around $20, and for larger transfers it can be even more.
Interestingly, Robinhood gave me instant access to use the $25,000 to buy stocks or funds. I’ve seen similar with Vanguard and it’s probably true with other brokerages as well. Those who already have balances with the brokerage will often be given instant access to trade the funds, even before the cash settles in the brokerage account.
I immediately used the $25,000 to buy SGOV which is an ETF that invests in US treasuries. We wrote more about various ETFs and funds which are similar to savings accounts in this post. Some ETF options are BIL, SGOV, and ICSH. (SGOV will have a state tax savings advantage for some people.)
If I would wait for the funds to settle in Robinhood, I do not think Robinhood would give me interest on the funds during transit time. Buying a treasury fund yielded me an extra 6 days of interest, probably around $20.
A similar thing can be done when transferring funds to Vanguard, though I’m not sure if all brokerage take as long for money transfers.
I might decide to just keep my funds permanently in SGOV or a similar fund within Robinhood. That would then enable me to take advantage of the Robinhood $1,000 free margin benefit. (When you hold funds in the cash account, it’s not possible to take out the margin loan.)
On a related note: when moving large sums of money, it’s often worth using a wire transfer and paying the wire fee if that results in retaining the funds longer in a high-yield savings account. The extra interest earned from those few days can outweigh the wire fee.
